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Retirement Investing - Borrowing From Your 401k - Part 3

November 2nd, 2006 by Papabear

So far we’ve discussed 4 reasons borrowing from your 401k account might be a good idea and 2 reasons to reconsider. Today we’ll finish out the 8 things to consider with 2 more reasons you might not want to borrow:

7. A home equity loan may be a better solution from your particular situation. Most states, with the notable exception of Texas, where I live, have made setting up a home equity line of credit simple. If you have enough equity in your house, and you have a good credit rating, you should consider a home equity loan. Unlike a loan from your retirement account, the interest you pay on a home equity loan is usually tax deductible.

8. There may also be special deals available that are better than a loan from your 401k account or a home equity loan. For example, at the time this is being written, several car companies are offering 0% financing for up to 60 months. If you qualify, this is a much better way to finance a new car that borrowing from your 401k account or using a home equity line of credit to buy a new car.

In conclusion, everyone’s situation is a little different. When you’re talking about $1,000’s of dollars and the impact of tax laws, it’s always best to get professional advice from an accountant or tax attorney. It may cost you $100 to $200 for a simple consultation, but it will be money well spent to find out what’s right for you and your situation.

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    Retirement Investing - Borrowing From Your 401k - Part 2

    November 1st, 2006 by Papabear

    Let’s see – 4 good reasons to borrow from your retirement account. Here are 2 good reasons not to borrow from your 401k account:

    5. As the old saying goes “some restrictions apply.” Our friends in Congress and the IRS don’t want this to be too good a deal, even if it’s our own money. After all, Congress thinks they did us a really big favor with 401k accounts by making it easier to save for retirement. Maybe they did, but like many good deals, this one comes with strings attached. First there’s the $50,000 limit. Even if your have $200,000 in your 401k account, and the general rule is you can borrow up to 50% of your 401k account balance, you are limited to borrowing $50,000 at any one time. In addition most plans usually limit the number of loans you can have at any one time to 1 or 2. For example, if you borrow 50% of your 401k account balance of $50,000 on a 5 year loan, and the $25,000 left in your account triples over the next 3 years from savings and increases in the value of the investment to $75,000, you cannot borrow another $37,500. First you are limited to a total outstanding balance of $50,000. Second, if your plan restricts you to 1 loan at a time, you will not be about the borrow 50% of the new value in your account until the first loan is paid off. Even if your plan allows for 2 loans at a time, most plans have another restriction that says the amount you can borrow on the second loan will be reduced by the highest outstanding balance on the first loan during the previous 12 months.

    6. If you switch to a new company, you may have to pay off your loan immediately. In many cases, this can be avoided by rolling over your 401k account, but if you can’t do that, the outstanding balance of your loan will be considered an “early distribution” from you retirement savings account and will be deducted from what you have available. You won’t have to pay the money back, but you will have to pay taxes on the balance of the loan as ordinary income. And if you’re less than 59 ½ yeas old, you will also have to pay a 10% early withdrawal penalty.

    Thinking about paying extra taxes is stressful, so we’ll end here today. Tomorrow, I’ll post 2 other reasons to think twice about borrowing against your retirement account.

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    Retirement Investing - Making Your House Your Retirement Home – Part 2

    October 30th, 2006 by Papabear

    Retirement investing isn’t just about stocks and mutual funds. It’s about spending your money wisely in all areas. Yesterday we talked about making your bathtub more accessible and adding a stair lift to help with climbing stairs. Today we’ll discuss some other practical changes you might consider to make your home better adapted for your later years.

    Better lighting is a change you can make now that’s an immediate benefit now and will also help in latter life. As we get older, our eyes can simply use a little extra help. This isn’t needed all the time, but if you have extra lighting, it can be great when you need it.

    You can install adjustable lighting that can make a room really bright when you need it but will let you dial the light back at other times. You can also install additional task lighting at your work areas or your home office desk or workbench, over the kitchen sink and under kitchen cabinets.

    Adding lighting to your front porch will help you see better who might be at the front door. And adding low voltage outdoor lighting along your front walkway will help everyone from your older friends to trick or treaters make it to your front door safely. A floodlight with a motion detector at the end of your driveway and at your back door will make walking safer at night for you also.

    Other changes you might want to consider include grab rails in the bathroom, lever style door handles and wider doorways that can accommodate a wheelchair later on. These changes are much less expensive to make if you’re doing some remodeling anyway. Some day you might need to add a ramp to reach that front door, also.

    For many of us, needing such accommodations to limited mobility may be years and years away, or we might never need them. The point is – if retirement is still a few years down the road – keep these needs in mind if you’re planning to do some remodeling soon. It can make life more pleasant now and can save money later on.

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    Retirement Investing - Making Your House Your Retirement Home – Part 1

    October 29th, 2006 by Papabear

    Let’s say you’re a few years from retirement. You’ve decided you don’t want to move out of state. You don’t want to move to a smaller home. In fact, like nearly one-half of all those who retire, you don’t plan to move at all, now or later. Instead you plan to spend some of your retirement investing dollars on making your home more livable for after you retire. What are some of the changes you should make that will be a sound retirement investment when you invest in your own home?

    First up is a little advance planning. Think about what changes will make life easier for you 10 or 20 years down the road. If you’re a bit of a handy-man, now is the time to begin to make needed alterations, while you’re young enough to do the work yourself. If you don’t enjoy doing your own work or don’t seem to have the time now for some remodeling, now is also the ideal time when you have a full-time income to pay for others to make the changes for you.

    Most of the changes you will need to make fall under the general heading of accessibility and mobility. Whether we like to think about it or not, our bodies aren’t as flexible, and we aren’t able to get around as well when we’re 70 as when we’re 50. A few adaptations can make life much easier.

    If you’ve been thinking of remodeling the bathroom, now might be a great time. But instead of putting in that Jacuzzi or garden tub, with the high sides that are hard to get into and harder to get out of, consider something like the walk-in tub from Safety Tubs. It has adjustable power jets for a soothing massage, like a spa tub. But it also has a door in the side to make getting into and out of it much easier.

    As a matter of fact, many older American’s find it very difficult to get into and out of a conventional bathtub safely. Garden spa tubs are even more difficult. Many older folks end up only being able to use a shower. A tub like the Safety Tub will be a Godsend if mobility or bending ever becomes a problem for you.

    Stairs can be a problem, whether it’s 3 steps up to a front porch or living in a two-story house. I found this out the hard way about 10 years ago when I had knew surgery. I never did learn how to climb stairs on crutches. It made me realize how big a barrier stairs can be to those with limited mobility.

    For a permanent solution to getting up and down the stairs, you can install a chair-type stair lift. Do-It-Yourself models start from $2,000 up, such as the Ameriglide. Deluxe models installed by professionals can cost thousands of dollars more. Installing a stair lift can indeed cost a considerable amount of money, but it’s a lot less trouble than moving from a two-story house you like to a one-story house just because you can no longer climb the stairs.

    We’ll continue discussing practical changes you can make to your home to adapt it for your later years tomorrow.

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    Retirement Investing - Retire in the North??

    October 28th, 2006 by Papabear

    A little over fifty years ago developers began building the first retirement communities in Florida and Arizona. Both Florida and Arizona offered the mild winters retirees wanted, especially those from the Snow Belt, and they also offered plenty of cheap undeveloped land for the developers.

    New retirement communities are still being developed in Florida and Arizona. Del Webb is now developing Sun City Festival in Arizona, a 3,000 acre site designed to eventually be home to 7,200 households. But now not only are retirement communities growing in Florida and Arizona, they are now popping up in other Sun Belt states like Texas and New Mexico. But what’s really amazing is the development of retirement communities in such northern locales as Michigan, Massachusetts and Illinois.

    Several things are driving this trend. Many retirees want to downsize from the house where they raised their families. They simply no longer need all that space, so they’re looking for a smaller house. They like the amenities planned retirement communities offer.

    At the same time, many folks have realized they don’t want to move half way across the country from their children and grandchildren, better weather or not. How much fun is being able to play golf in January if there’s a new grandbaby you only get to see once or twice a year because of the distance.

    The booming real estate market of the last few years, particularly in the Northeast, has driven home equity up to all-time highs. But if you sell your house to capture the equity, where do you go when you buy a smaller house? People moving out of larger houses can afford to relocate to a planned retirement community, but in what part of the country?

    Oak Point in Massachusetts is a great example of this new trend of Northeastern retirement communities. It has the community clubhouse and shuffleboard courts you would expect in a 55+ community in the Sun Belt. It has almost all the amenities you’d find in a Florida or Arizona retirement community except the weather.

    But it’s not just shuffleboard and bocce ball. Since Oak Pointe is also designed for active seniors, you can wait for the snow to melt in the heated swimming pool and the state-of-the-art fitness center. You also don’t have to shovel the snow: the maintenance staff does it. It’s all included in the price. When you want some big city excitement, Boston is less than an hour away by car or bus. If you want a day at the beach, Cape Cod is also an hour’s drive away.

    Especially for those with children in the area, and for those who enjoy the cultural amenities of the Boston area, retirement in the North makes great sense. Even a few folks who were living in the Sun Belt have now moved into some of these Northern retirement communities. Who could have imagined that a few years ago?

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